ECONOMIST COLM McCarthy, architect of the “Bord Snip Nua” proposals, presented the measures as a central strand of the Government’s four-year plan to rebalance the public finances and reduce the requirement to borrow €400 million a week to run the State.
Arguing that the Government was paying the penalty interest rates on its borrowings – in excess of two percentage points above the rate Germany pays for equivalent 10-year loans – he said the current dependence on international capital markets “can’t go on”.
It was not possible, he said, to continue borrowing at that rate and “very, very dangerous”. Stating that it was wrong to conclude that the credit crisis was over, he said there was no guarantee that any government could sail through borrowing at the current level without encountering hiccups on the bond markets.
“The idea that the measures taken to date are going to get us out of the woods is just not an option,” he said.
The corrective measures taken to date had reduced this year’s deficit to a little above 11 per cent of gross domestic product (GDP) from a potential 15 per cent. However, it would be very unwise to attempt a repeat of the practice in the 1980s when governments borrowed the equivalent of 10 per cent or 11 per cent of GDP for the best part of a decade.
“I don’t think that’s feasible and it’s very, very risky,” he said. “We have got to get from where we are now back to low single-digit borrowing in that kind of timescale [three or four years]”.
Mr McCarthy said Ireland was paying the highest interest rate in the euro zone for borrowings. “So there really isn’t much scope other than to look at a medium-term fiscal correction. We’re obligated to do that under our membership of the euro zone anyway.”
With prices falling since last year, cutting welfare payments by 5 per cent would bring their value back to the same level as in 2008.
Calling for consideration of an increase in qualifying age for pensions to an unspecified level, he said: “One of the things that has happened in Ireland over the last couple of decades is a sharp increase in life expectancy at retirement age and that’s hugely costly for the Exchequer . . .” This was creating “huge problems” for State pension schemes and for defined-benefit schemes in the private sector.
“Either you’ve got to have higher taxes to finance the State schemes, much higher savings rate in the private sector to finance the funded schemes, or an increase in the retirement age.
On local government reform, he said: “We’ve too much local government, we’ve a multi-tier system, we don’t think we should have a multi-tier system, we think we should have fewer local authorities, some of them are just sub-scale.”
There were some local authorities, “with a full range of senior officials, for local authority areas with fewer people than a single suburb of
Dublin”.
On State agencies in general, he said: “we kept asking, what are they doing, do we need that many of them, could we merge agencies, is there more than one agency trying to do the same thing, and quite often there was.”
Asked if the group considered any proposal to cut the number of TDs from the current 166, he said: “We talked long and hard about this question and we’re very conscious that there’s an anti-politics attitude out there right now and most people would probably happily abolish 166 TDs.
“But, stand back from the populist mindset that may be out there.” In the
Constitution, the minimum number was about 150 but there could be a maximum of about 220. Scrapping the Seanad and having a unicameral parliament would save an estimated €25 million per annum.